Non-Owner Occupied

Posted in Finance, Accounting and Economics Terms, Total Reads: 937

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Definition: Non-Owner Occupied

Non-owner occupied refers to a classification of investment property in which the property is not occupied by the purchaser or the owner that is neither a primary nor a secondary residence. This classification is used in mortgage industry, for risk-based pricing of investments. Properties are usually classified as owner-occupied or non-owner occupied for statistical purposes of learning about the demographics of a region. This classification is used for tax purposes, for financing mortgages by banks, etc.

The owner/s of a property might decide to treat it as a rental investment or may lease the property at the time of shifting to a different residence. The properties that are not going to be occupied by the owner are classified as investment properties and mortgages on such properties are perceived as likely to default. Mortgages on properties that are occupied by owners as primary or secondary residence are least likely to default. On the other hand, non-owner occupied properties are associated with default risk as non-owners may flee from such properties in tough financial times. To compensate for this default risk, the interest rates on non-owner occupied mortgages are typically a few percentage points higher than for owner-occupied investments. Additionally, the down payment for non-owner occupied properties is usually higher as well. As such, some borrowers tend to misrepresent their intention of using the property at the time of applying for financing the mortgage and attempt to save money by paying lower interest rates attributed to owner-occupied investments.

Hence, this concludes the definition of Non-Owner Occupied along with its overview.

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